KASB Bank: China moves to shield interest of its major investor

Writes letter to SBP after the investor sought diplomatic assistance.

ISLAMABAD:

The central bank’s decision to impose a moratorium on KASB Bank is fast becoming a diplomatic issue, as after Iran, China has jumped in and asked for lifting the curbs in an attempt to secure the interest of its investor that has a 43% stake.

Beijing’s embassy in Islamabad has decided to intervene after Chinese investor Fu Yehui, whose company controls a significant stake, requested for diplomatic assistance, according to a letter written by the embassy to the State Bank of Pakistan (SBP).

Fu Yehui is the sole shareholder and director of Pairdos International Limited. The entity, through Asia International Finance Limited (AIFL), holds approximately 50% beneficial interest in KASB Corporation and corresponding beneficial interest in KASB Bank, says the letter. KASB Corporation has a 84.64% shareholding in KASB Bank.

The letter was written on December 10, three weeks after the SBP placed a moratorium on KASB operations after the bank failed to meet minimum capital requirements. Most of the stakeholders have criticised the SBP’s decision, terming it ill-timed, though they agree that corrective steps are needed to restore financial health of the bank.

Sources said days before the SBP’s move, the bank’s Chinese partners met with central bank officials and told them that the Industrial and Commercial Bank of China (ICBC) was engaged in negotiations for acquiring part of their equity and investment in the bank. But the SBP did not allow due diligence.

The Chinese partners again met SBP officials a few days ago, but consensus could not be reached this time too.

ICBC is already present in Pakistan and a former SBP governor is said to be its adviser.

The Chinese embassy has requested the State Bank to recognise AIFL’s shareholding in KASB. It also called for a review of the moratorium.

“The restrictions as stated in the (suspension) order would inevitably affect the image and business operations of the bank and the interest of AIFL, ultimately owned by a Chinese citizen,” said the letter.

Talking to The Express Tribune, SBP spokesman Abid Qamar said there was no substance in claims of merger talks and all these were just rumours.

The Iranian money

Iran has already demanded that the government help return its deposits of $216 million in KASB Bank that have been frozen after the moratorium. However, the government has expressed its inability, fearing the US could impose sanctions over the transfer of money.

KASB Bank had taken Iranian deposits with the SBP’s permission and by informing former finance minister Dr Hafeez Shaikh, according to a former official of the bank.

He pointed out that under the regulations, a bank could take foreign deposits up to 20% of its total deposits and for amounts higher than that it would have to seek the central bank’s permission.

The Iranian deposits were more than double the ceiling. At present, these are one-third of the bank’s total deposits.

The Chinese embassy has also urged the central bank to reach a settlement with AIFL, aimed at protecting its investment and business operations of the bank.

Askari Bank has recently got permission to conduct due diligence for acquisition of KASB Bank. According to banking sector experts, KASB is still lucrative for large commercial banks as its well-established network of 107 branches will allow the buyer to set up a separate subsidiary, which could be Islamic banking branches.

Secondly, KASB has net deferred taxes of over Rs4.5 billion, which will immediately yield a profit for the buyers. The government was also considering the option of merging KASB with the National Bank of Pakistan, said the sources.

Published in The Express Tribune, December 20^th, 2014.

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